Russia’s Treasury holdings plunged as the Ukraine crisis was heating up

Russia reduced its holdings of U.S. Treasurys by $25.8 billion in March as the crisis in Ukraine was getting more tense, according to Treasury International Capital data released on Thursday.

Russia was facing potential economic sanctions from the U.S. at the time, which led to speculation that the eastern European nation was moving around its Treasury holdings to avoid impending restrictions. In the middle of that month, the New York Federal Reserve Bank reported a $105 billion drop in its holdings held in custody for other banks, which many believed to be Russia’s doing.

The TIC data out Thursday is reported with a two month lag but it breaks down the flow of assets between countries. The drop in Russia’s holdings confirms that the country was in fact doing some type of maneuvering (though it doesn’t say anything about the NY Fed holdings).

“It’s an interesting shift and provides some support to the argument that the shift in holdings has been driven by geopolitical concerns vs. Economic/valuation,” said Ian Lyngen, senior rates strategist at CRT Capital Group, in a note to clients.

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Oil refinery in Ufa, Russia

So if Russia was pulling funds off of its own soil, where did it go? The country was very likely just shifting the custodian country where those Treasurys were held.

“We believe this was due to the shift in custodians prior to heightened tensions in Ukraine, demonstrated by large inflows into Luxembourg and Switzerland,” said Jeffrey Young, a U.S. rates strategist at Nomura Securities, in a note to clients.

The other interesting story in the TIC data is that Belgium continued its Treasury buying spree. Belgium bought $40.2 billion, the holdings data show. Year-over-year, Belgium’s holdings are up $193 billion, 86%, according to Stone & McCarthy Research Associates.

Because the data include securities held in custody for countries, strategists suggest Belgium, which is known as a “custodian country,” was just holdings securities for others. Nomura strategists have posited that the Belgium flows are from China, among other countries. The strategists last month said that China put Treasury holdings in custody in Belgium in February as well.

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